Alcoa’s Earnings and the Market

An update on a theme we continue to follow at the Options Institute.
Does Alcoa’s stock price reaction to their earnings release give insight
into the direction of the overall stock market?

What is referred to as earnings season unofficially started with Alcoa (AA) reporting earnings last Monday April 11th. The stock price reaction to the news was a loss of 0.15 to 17.77. Historically the stock price reaction for AA on the first full trading day after earnings are released has been a good indicator of the direction for the market over the next five days as measured by the Dow Jones Industrial Average (DJIA). Now that five days have passed I wanted to review the history of AA as a market indicator.

Below is a quick review of the reaction of AA to earnings and the DJIA trading for the five days following AA’s earnings price reaction.

AA – Friday 4/8 – Closed at 17.92

Monday 4/11 – Closed down 0.15 to 17.77

DJIA –    Monday 4/11 – Closed at 12381.11

Monday 4/18 – Closed down 179.52 points to 12201.59 

 

This time around AA indicated an expected drop in the DJIA and this prediction turned out to be accurate. At the Options Institute we compiled data on AA and the DJIA going back to the first report in 2000 and here’s what we found –

We compiled data going back over 10 years and now have 42 data points.

31 of the 42 AA price reactions have resulted in a correct DJIA prediction.

This comes to a winning percentage of 74%.

The Alcoa prediction for the first quarter has passed, but we can revisit this come July when AA starts the earnings season for the summer.